After last year’s pandemic, mortgage lenders tightened their requirements on borrowers, approving only those with good credit and stable jobs.
Mortgage credit availability – a measure of how willing lenders are to provide home loans – is rising again, according to a widely used index.
If you’ve been saving up for a down payment and working on improving your credit score, this could be a good time to start your home shopping – especially with Mortgage rates are still at historic lows.
It’s easier for borrowers – but still not easy
The availability of credit has seen an upward trend since the end of last year and rose slightly according to the March Mortgage Bankers Association. An increase in the MBA’s Mortgage Credit Availability Index suggests that lending standards are easing, while a decrease means that lending is tightening.
Despite the recent surge, access to credit is still well below pre-pandemic highs. Current availability is similar to 2014, as the mortgage bankers report shows.
That said, if you don’t have great credit and a sizeable down payment, be prepared for lenders to be scrutinized. You may be asked to provide additional employment or income documentation to show that you can repay your loan.
If you own your own business, you could be in an even bigger shock, says Steven Ho, senior loan officer at Quontic, an online bank and mortgage lender.
“It has been a lot harder for someone who owns a business to get a loan,” says Ho. “They want to see the most recent business transaction history. It’s almost like audited financial statements that they ask for.”
Lenders tightened after COVID first flared up
Lenders are loosening up a bit now after making it a lot harder for borrowers in 2020.
After the coronavirus outbreak, Chase, Wells Fargo, and other major banks began tightening their lending standards. Borrowers were required to have a credit score of at least 680 and to make a 20% down payment on certain home loans.
Meanwhile, mortgage origins for top credit borrowers soared over the past year as those who were able to keep their jobs during the pandemic and save money along the way bought bigger homes and refinanced their loans.
In the last three months of 2020, 71% of mortgages went to borrowers with credit scores above 760. This was a 64% increase over the same period in 2019 Data from the Federal Reserve Bank of New York.
“You could either get a mortgage if you were actively working and getting a huge interest rate, or it was really, really hard to get a loan,” says Ho.
If you wanted to apply for a mortgage but are unsure whether your credit is snuff, it’s easy Get a look at your credit score for free.
Your best choice may be a government sponsored loan
Since lending is falling again, according to the MBA’s credit index, state-insured loans in particular are increasingly available to borrowers.
This includes mortgages supported by the Federal Housing Administration, the U.S. Department of Agriculture, and the Department of Veterans Affairs, all of which have lower credit score and down payment requirements. If you qualify for a USDA or VA home loando not require a deposit.
As a group, credit for these government-backed loans rose for the sixth time in seven months in March, and hit its highest level in a year, according to the MBA. This is helping more Americans become homeowners.
“With the anticipated growth in the shopping market driven by millennials and first-time buyers, the availability of credit to qualified borrowers will play an important role in supporting that demand,” said Joel Kan, chief forecaster for the MBA.
FHA loans are especially popular with first-time buyers who may not have a lot of cash to deposit. The requirements include a credit score of 580 or higher and a down payment of only 3.5%.
How To Improve Your Chances With A Lender
Borrowers with larger budgets also enjoy more relaxed standards.
The supply of jumbo loans, that is, large-ticket mortgages for the most expensive homes, rose for the sixth consecutive month in March.
But if you aren’t one of those high roller borrowers or don’t have spotless credit, there are ways to improve your financial situation so you can qualify for one of them today’s low mortgage rates before they slip away.
If you can add more points to your credit score, try paying off your credit card debt with the help of a Lower interest debt consolidation loan.
And to build up a down payment, you might consider a lower investment method. A popular investment app will help you with this Grow your “change”: It rounds out your daily purchases and puts the difference in an investment account so you can get some returns from the record breaking exchange.